Savings from the public pay bill have been earmarked by the troika

The rejection by trade unions of the pay cut package in the second Croke Park deal presents an acute new problem for the Government. This is extremely difficult for the Labour flank of the Coalition but shows too that Fine Gael is not immune to anger in the public sector at the steady erosion of pay and new taxes.

The backlash demonstrates that there is very limited appetite for “good news” about the extension of bailout loans and the like, and underlines the brutal fact that “bad news” which reduces money in the wallet penetrates further and resonates longer. There is no getting away from that hard lesson.

Taoiseach Enda Kenny and Ministers have repeatedly threatened to impose pay cuts unilaterally by way of legislation. However, the sense around Leinster House last night was that an effort may be made to salvage something from the wreckage in a fresh round of talks with trade union leaders.

Union leaders Whether that comes to pass remains to be seen, but Labour TDs in particular insist that everything possible should be done to keep on board those union leaders who signed up to the original package. Rather than giving dissenting union leaders the upper hand, the hunch must be that the Government will have another go at this. That seems sensible, given the clear danger of disruptive industrial action against any unilateral cuts.

Thus there is already talk in the top echelon of the Coalition about the need to carefully examine the final result to see where the faultlines lie. In any cases where there was a majority for the package, there may yet be an opening to proceed with some of the cost-saving reforms foreseen in the original package. There may be limited measures of leeway there: not enough to save the day, although every little helps in a scenario such as this.

But the fundamental problem remains that the Coalition and its sponsors in the EU-IMF troika have earmarked huge savings from the public pay bill. The requirement this year is no less than €300 million with a lot more to come later. There is no pretty way of achieving that, as the outcome of the union ballots show.

With Government credibility in the eyes of market investors a prerequisite for a smooth exit from the bailout, the scope to examine alternative approaches appears marginal.

There is a little time, but not a lot. The pay savings are required under the budget plan from the beginning of July. The advantage for all Government deputies in any new engagements with union leaders is that they might just forestall the necessity to walk through the Dáil lobbies to vote for unilateral pay cuts.

The real political danger is of course on the Labour side, where TDs with strong public sector votes might decide that defiance of the whip is a better way of preserving their re-election prospects than voting for pay cuts. The argument may be made that many of those wont to cause trouble for Eamon Gilmore have already jumped. To lose any others in a pay cut vote would only amplify the sense of apprehension in the party.

Still, the point might also be made that no Fine Gael TD can expect a warm welcome from public sector constituents for pay cuts. The arrival in the Dáil yesterday of newly elected TD Helen McEntee recalled the Meath East byelection before Easter, and a hostile reception on the doorsteps for many Government figures. In political circles the sense remains that the Fine Gael seat would have been lost were it not for the tragic circumstances involved.

Jitters Government jitters ever since are evident in the move to postpone the introduction of the water tax. While the case is made that the metering system won’t be ready to start charging for water next January, the delay smacks of an effort to minimise trouble before the local and European elections in mid-2014.

But there will be no avoiding trouble if public pay is cut unilaterally. In recent days, Minister for Public Expenditure Brendan Howlin warned of a 7per cent pay reduction across the board if the new proposals went down. However, that must be seen as a gambit to persuade workers on salaries below €65,000 to back the deal as pay under that threshold was protected.

It would be politically unwise to proceed with cuts across the board, introducing workers on lower pay to the horrors of a pay cut because the generality of union members would not vote for a deal that protected them. If that is a relatively easy calculation to make, making up the €300 million by alternative means is not so straightforward and replete with danger.

The Government hoped to limit the damage by tying union leaders into an agreed package but the people they represent have now opted to repudiate the plan. This is a big setback, though not entirely unexpected. The days of cosy partnership deals are but a distant memory now.